In Sri Lanka, the termination of employment is governed by the Industrial Disputes Act No. 43 of 1950, as amended (“IDA”), and the Termination of Employment of Workmen (Special Provisions) Act No. 45 of 1971, as amended (“TEWA”). These laws apply across all categories of employees.
On a collective application of these statutes, termination of employment in Sri Lanka can only be effected in the following circumstances
- With the employee’s explicit consent, typically in the form of a resignation or mutual separation;
- With the prior written approval of the Commissioner of Labour (“COL”); or
- For a justifiable cause.
An aggrieved employee may seek redress by filing an application within six months of such termination to either to a Labour Tribunal under the IDA or the Termination Unit of the Labour Department under TEWA, where the termination is not on account of disciplinary grounds, provided that the other pre-requisites are met.
The amount of compensation that may be awarded by COL under TEWA is regulated by specific provisions. Labour Tribunals in Sri Lanka award relief that they deem “just and equitable” based on the unique circumstances of each case based on the evidence presented before it.
Redundancy Laws in Sri Lanka Explained
Termination of employment by way of redundancy or severance in Sri Lanka can be implemented under two specific circumstances:
- With the employee’s consent or
- With the prior written approval of the COL.
Option (a) involves the employee tendering their resignation in exchange for a severance sum, generally by a severance agreement signed by the employee and employer.
Option (b) involves making an application to the COL under TEWA to seek approval for the termination of the employee(s). Option (b) would apply if the employer anticipates:
- Closure of operations or the cessation of business by the employer;
- Reduction of workload/removal of specific job functions where such scope of work is no longer carried out by the employer; or
- Financial constraints of the employer, where maintaining the current workforce is no longer viable
If the COL grants approval for termination, the compensation payable to the employee will be determined according to a formula set out in the Extraordinary Gazette No. 1384/07 dated 15th March 2005 (“Termination Gazette”).
Frequently Asked Questions:
While there is no specific definition in either the TEWA or the IDA of what constitutes “justifiable cause”, case law has identified that the following types of conduct constitute grounds for justifiable cause to dismiss on disciplinary grounds (these are not exhaustive):
- Persistent and unauthorised absence, late arrival, early departure
- Gross negligence in the discharge of duties
- Insubordination
- Abusive/unruly behaviour
- Dishonesty
- Theft
- Intoxication
- Loss of confidence
Where the COL gives approval for termination, the compensation payable for termination will be as per the formula set out in the Termination Gazette. The formula for computation of the quantum of compensation:
| No. of years of service* | No. of months salary to be paid* | Maximum compensation |
|---|---|---|
| 1 to 5 | 2.5 | 12.5 months |
| 6 to 14 | 2 | 30.5 months |
| 15 to 19 | 1.5 | 38 months |
| 20 to 24 | 1 | 43 months |
| 25 to 34 | 0.5 | 48 months |
*Number of years of service completed at the date of termination
*Number of months salary to be paid as compensation for each year of service
In applying the above formula, if an employee has completed 7.5 years of service at the date of termination, the compensation should be computed as follows:
(2.5 months’ salary x 5) + (2 months’ salary x 2)
The maximum severance pay for an employee according to the above formula will be LKR2,500,000/-
Gratuity entitlements are governed by the Payment of Gratuity Act No. 12 of 1983. An employee is entitled to gratuity if their employer employs 15 or more persons on any day within a 12-month period prior to the employee’s termination, and the employee has been in continuous service for a period of five years.
Should the employee(s) be entitled to gratuity under said Act, such payment will be separate and in addition to the payment received on account of severance.
An aggrieved employee may seek redress by filing an application within six months from the date of such termination to:
- Labour Tribunal under the IDA or
- Termination Unit of the Labour Department under TEWA where the termination is not on account of disciplinary grounds, provided that the other pre-requisites are met.
